European politicians and markets have reacted anxiously after Italy's general election produced a stalemate between centre-right and centre-left blocs.

The Milan stock market plunged and Italy's borrowing rates jumped after centre-left Democratic Party leader Pier Luigi Bersani scraped a razor-thin victory in the lower house of parliament, but the Senate remained up for grabs

Markets in Europe, Asia, the United States and Australia also fell on fears of instability in the eurozone's third biggest economy.

A majority in both chambers of parliament is required to form a government, leaving Italy in a state of limbo with a hung parliament that is unprecedented in its post-war history.

"It is clear to everyone that this is a very delicate situation for the country," Mr Bersani said.

Silvio Berlusconi's right-wing forces came a close second, winning 29.18 per cent of the vote to 29.54 per cent for Mr Bersani in the lower house.

A third force - the populist, anti-government Five Star Movement (M5S) of former comic Beppe Grillo - won big, reaping a resounding protest vote from an electorate fed-up with austerity policies and a grinding recession to score 25.5 per cent in the lower house.

'Leap into unknown'

European capitals, which fear the deadlock could plunge Italy back into the debt crisis storm, sounded the alarm.

"It's a leap into the unknown, which bodes poorly both for Italy and the rest of Europe," Spanish foreign minister Jose Manuel Garcia Margallo said.

European powerhouse Germany, as well as France, also reacted nervously, with German foreign minister Guido Westerwelle calling for a new government to be formed "as quickly as possible".

"The politicians in Rome know that Italy still needs a policy of reform, a policy of (budgetary) consolidation," he said.

The European Union's executive also said it had heard "the message of concern" sent by dissatisfied Italian voters, but expected the country nevertheless to stick to its pledges of budget cuts and economic reforms.

But "Italy has made commitments vis a vis the Commission and other member states, on the reduction of its deficit, on the reduction of its debt, and on a number of other pledges of structural reform.

"As far as we are concerned these commitments remain, they are Italy's commitments and the Commission expects Italy to honour its commitments."

New vote?

The big loser in the poll was outgoing prime minister Mario Monti, who was drafted to run a technocratic government in the debt-strapped country after Mr Berlusconi was ousted at the height of the financial crisis in 2011.

In contrast to Mr Grillo's shock success, Mr Monti won just 10.56 per cent in the lower house. While he won praise in Europe, he was increasingly criticised at home for his austerity measures.

"The real Italy has expressed all its malaise and in this vote can be heard the voices and the stories of those who cannot find work, who cannot retire... those who think they have no future and flee abroad," the daily La Stampa wrote.

Political analysts suggested a possible return to the grand coalition agreement between right and left seen under Mr Monti over the past 18 months, or even dissolving the Senate alone to hold fresh elections for only one chamber of parliament.

But Mr Berlusconi dismissed the idea of fresh polls, saying: "I don't think it would be useful in the situation."

Mr Monti called on any future government "not to dissipate the sacrifices made by Italians," adding: "A government must be guaranteed for the country."

The down-to-earth Mr Bersani, the 61-year-old son of a car mechanic, has told Italians he is the best man to help promote a growth agenda for Europe and "turn the page" after Mr Berlusconi.

The former communist has said he will abide by the budget discipline enforced by Mr Monti.

Mr Berlusconi waged a populist campaign, blaming Germany for Italy's economic woes and promising to refund an unpopular property tax to Italians - out of his own pocket if needed.

The 76-year-old media tycoon is a defendant in two trials for tax fraud and for allegedly having sex with an underage prostitute.

He is also the only post-war prime minister to have served out a full five-year term. The Milan native has been prime minister three times in a turbulent 20 years in politics.